Some of the participants at a recent retreat of central bank governors and economists charged that the Fed did too much to help Wall Street and too little to aid taxpayers.
According to the Associated Press, "A possible bailout of Fannie Mae and Freddie Mac, on the heels of similar action involving investment firm Bear Stearns, seems to send a loud signal to financial companies that the government will clean up their messes."
The point may make seen in dollars and cents, but it fails to acknowledge that a complete collapse of the financial systems does no one any good. The Fed and Treasury have put tens of billions of dollars of liquidity into banks and brokerages, mostly in the form of low costs loans. A bail-out of Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) could cost billions more. Ultimately, taxpayers will foot the bill for those actions.
By listening to Wall Street, the Fed has helped the financial industry while ignoring other troubled sectors like automotive. But, if a large U.S. bank or brokerage firm fails, the panic could drive the markets into a flat spin and trillions of dollars in wealth would be lost.
The Fed is too close to the financial community and that is a good thing.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-24-2008 @ 2:18PM
ROBERT DARNELL said...
I REALLY DON'T SEE THE INTENDED RELIEF FOR THE CONSUMER TRYING TO BUY A HOME FROM A BANK LENDER.
THE FED. SAY'S THAT THEY HAVE LOWERED THE INTEREST RATE TO 2%
TO THESE LENDERS, BUT THESE LENDEWRS ARE ACTUALLY RAISING THEIR INTEREST RATES TO THE CONSUMER. HOUSTON AVERAGE 30 YR HOME LOAN AT 6.58% OR HIGHER.???
THIS ISN' ANY INCENTIVE FOR PEOPLE TO BUY, THIS IS ONLY A BAIL OUT OF FREE MONEY FOR THE BIG BANKS OR LENDERS. RIGHT? SINCE THEY DON'T PASS IT ON TO THE CONSUMER. ALSO THERE IS RUMOR THAT THE FED. MAY EVEN NEED TO LOWER THE INTEREST RATE AGAIN OR EVEN TWICE MORE???
AGAIN MORE MONEY FOR THE BIG BANKING INDUSTRY. IS THIS REALLY THE TRUE INTENT?? I SEE THIS AS ONLY A PART OF THE REAL PROBLEM. BOB
8-24-2008 @ 3:15PM
william lindblad said...
Everyone is entitled to their opinion and I don't agree with the Fed being in bed with Wall St. I don't think that our government leadership has any place there either.
The conference also addressed the cause of the current crisis as being "lax loan standards". Yes, this is true and it is truly amazing that it took all of these highly intelligent academics two full years to come to this conclusion. What is disheartening is that they did not make any mention of the "how & why". This seems to have taboo written all over it, but we did have people in charge of oversight. We have Congress. We have the House and Senate finance committees with Barney Franks, the hearing holder, in charge of the House. I tried e maling Barney and I tried writing. Unless you are from Mass., he does not accept complaint/comment. I guess Mass. is another country as he sure acts like it. Here is a man that had the power to say "whoa" to the lax loans and his mere suggestions would have stopped most. The Fed has had the power to stop predatory lending since the early 1990s and they did not do a damn thing either.
While I agree that not coming to the aid of Bear-Sterns had the potential for setting off further financial ills, it also set a bad precedent. It was a hasty gamble and has now made the government the lender of last resort for all types of business. There is also a great possibility that the economy will get too, or near, depression anyway.
Therefore, the argument that the Fed should be with Wall St. has little merit. If the Fed and the Congressional committees had been vigilant - we would not have this problem.
That is our big problem - the "for sale" sign.
8-24-2008 @ 4:53PM
Louis said...
DUH!!!!!!!!.......And how long did it take the experts too see this, its true, I really
think that the Republicans and the Banks
have manipulated Wall St. with huge pay-offs to screw average "Americans" out of
their money and spread the wealth to the rich!!!....Then they ask the Govenment to
bail them out, double screwing us!!.When are we going to wake up and take our country back????
8-24-2008 @ 8:05PM
NoInform8tion said...
I remember several months back one night seeing the futures at about -500 thinking what's going on, and then the next morning waking up to Bernanke on TV lowering the fed's rate (in between meetings). Then the Bear Stearns emergency weekend meeting. Then opening the discount window to investment as well as commercial banks. Now possibly leaving that window open indefinitely. Also, now bailing out Fannie and Freddie. So yeah it seems Bernanke is cozying up with Wallstreet. Also, isn't Paulson a former Wallstreet executive? Seems strange when the banks are making money the profits are privitized but when they are losing money or insolvent their losses are public. How is this possible or allowed? Can't have it both ways. During the Depression they allowed the banks to fail and although long and painful, the US came out of it stronger through industrialization. If we never have the fall what will be the catalyst to make us stronger this time? Keep passing the bubble along until someone else gets blamed for the fall down the road? Will that really resolve the deficits? Yeah no one wants to be in charge when it becomes time to pay the piper, but eventually the piper will be paid.
8-25-2008 @ 8:04AM
Dan Barnett said...
But doesn't "knowing" that the Fed will step in & save the financial institutions (in the name of a sound economy); actually encourage such institutions to take on additional risk?
If the risks pan out, then the institutions rake in the profit, if the risks flop, then the Fed picks up the tab. & in any event the Officers & Directors of the institutions get their bonuses.
Sweet deal if you can get it.